Huge losses in pig farming, big profits in pig slaughtering: the wildly uneven profits across the pig industry chain

In the pork industry chain in the first half of this year, a dramatic scene unfolded in which some were happy and some were sad.

Shuanghui Development released its semi-annual report on the evening of August 11, earning a net profit of 2.197 billion yuan in the first half of the year, a sharp year-on-year increase of 30%. Chuying Agro-Pastoral suffered a large loss of 148 million yuan over the same period.

Feng Yonghui, chief analyst at the China Pig Early Warning Network, told reporters that the breeding segment of the pork industry chain bears almost all operational risks, including disease and fluctuations in grain prices, while the slaughtering and processing segments face minimal risk. However, when profits are distributed, the breeding segment does not receive returns commensurate with the scale of risk it bears.

A veteran in meat product processing said that when pig prices fall sharply, that is precisely when slaughtering and meat processing enterprises stock up heavily. In the first half of 2014, Shuanghui Development slaughtered 7.67 million pigs, exceeding its first-half plan, a year-on-year increase of 21.8%. Because buying pigs was cheap, Shuanghui Development's slaughtering business gross margin reached 13.03%, an increase of 1.10 percentage points; the gross margin of the downstream meat processing segment reached 27.84%, an increase of 2.47 percentage points.

Coincidentally, Shanghai Maling also benefited from the cost decline brought by the sharp drop in pig prices. Shanghai Maling's performance in the first half of this year was considerably worse than Shuanghui's, but still much better than Chuying Agro-Pastoral's. In the first half of the year, Shanghai Maling's gross margin for livestock and poultry slaughtering was 10.86%, an increase of 1.45 percentage points; the gross margin of food businesses such as pork processing was 25.82%, a year-on-year increase of 0.8 percentage points, and the company achieved a net profit of 83.88 million yuan, a year-on-year increase of 11.17%.

The uneven hot and cold conditions in the pork industry chain are a phenomenon unique to China. Feng Yonghui said that because China's slaughtering market is affected by factors such as local protectionism, a very strange phenomenon has appeared in China's pork market: when live pig prices rise, the increase in pork prices is higher than the increase in live pig prices; when live pig prices fall, changes in pork prices are relatively slow, and profits in the slaughtering segment remain relatively stable.

However, judging from the situation in recent years, whole-industry-chain development is the future trend, and only then will corporate performance avoid sharp fluctuations. In the first half of the year, when pig farming losses were most severe, the loss per pig marketed reached more than 200 yuan at most. Feng Yonghui said that in 2011, pig farming enterprises could earn a profit of about 500 yuan at most per marketed pig. Over the past three years, profits have shrunk by about 80%, and in the first half of this year there was a direct loss. If an enterprise has both breeding operations and slaughtering and meat processing operations, losses upstream can be offset downstream, smoothing peaks and filling valleys, and performance will be relatively stable. According to First Financial Daily